A class-action suit led by the $16.1 billion Arkansas Teacher Retirement System against Goldman Sachs Group over misrepresentations made to investors during the subprime mortgage crisis has been allowed to move forward.
The suit's class certification was reaffirmed in federal court Tuesday in New York after Goldman Sachs appealed an earlier decision to affirm the certification.
The suit alleges that Goldman Sachs and several of the firm's executives committed securities fraud by failing to disclose conflicts of interest with respect to its sale of collateralized debt obligations, particularly one referred to as the Abacus transaction, thereby artificially maintaining an inflated stock price. It further alleges that "several high-profile government fines and investigations" exposed the conflicts "to the market thereby reducing its share price" and resulting in significant losses to investors.
The suit, originally filed in 2011, was granted class certification in September 2015, but Goldman Sachs appealed, leading the court to reverse the decision in 2018.
U.S. District Judge Paul A. Crotty in New York then ordered additional briefing and held an evidentiary hearing and granted the plaintiffs' request to certify the case as a class action. Goldman Sachs appealed the decision again.
"We are pleased with the court's thorough and comprehensive decision concerning the last major credit crisis securities case," said Thomas A. Dubbs, a partner in the law firm Labaton Sucharow and lead counsel for the plaintiffs in a news release. We look forward to trial."
In addition to the Little Rock-based state teacher's retirement system, other plaintiffs in the suit include the $16 billion West Virginia Investment Management Board, Charleston, and the $6.2 million Plumbers and Pipefitters National Pension Fund, Alexandria, Va.
"We believe that our appeal raises important and recurring legal issues impacting securities class actions generally," said Goldman Sachs Maeve DuVally in an emailed statement. "We intend to ask the full 2nd Circuit to review this decision."
In 2010 Goldman Sachs agreed to pay $550 million to settle charges from the U.S. Securities and Exchange Commission that the firm misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.
